by Calculated Risk on 12/26/2011 09:05:00 PM

I always pay close attention to Fed stories from Jon Hilsenrath at the WSJ: Slowing Inflation Cheers Fed

U.S. inflation is slowing after a surge early in the year. ... The Fed has been considering new steps to spur growth. Two ideas are on the table: commit to keep short-term interest rates near zero for even longer than through mid-2013, and restart a bond-buying program aimed at driving already-low long-term interest rates lower. Before taking either step, though, Fed officials would want to have some comfort that they wouldn't be creating undesired inflation.

As Hilsenrath notes, inflation is slowing by most key measures, and this will give the Fed more leeway. It always seems the Fed telegraphs their intentions, and it now seems very likely the Fed will add a range of Fed funds rate forecasts to their quarterly economic projections at the next FOMC meeting on January 24th and 25th.

If the Fed funds rate forecasts are added, this would replace the sentence in the FOMC statement - "The Committee ... currently anticipates that economic conditions ... are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013". The bond buying program (aka QE3) would be data dependent and probably start a little later in the year if economic growth disappoints.

Weekend:
• Schedule for Week of Dec 25th
• Summary for Week ending Dec 23rd